Lloyd’s Provides Million-dollar Coverage for Adventurer

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UK adventurer Sarah Outen is known for her amazing athletic ability and unending endurance. In 2009, she became the first and only woman (and the youngest person) to row solo across the Indian Ocean.

But that wasn’t quite enough for the ambitious 25-year-old. On April 1, she set off on her latest expedition that will take her from London, around the world, and back to London after two-and-a-half years of rowing, cycling and kayaking. A dangerous feat to say the least.

To provide coverage for such an event, Lloyd’s stepped in, issuing a $2 million insurance policy to be placed in the Lloyd’s market.

Jonathan Thomas, the Lloyd’s underwriter at Watkins syndicate who designed the policy, said: “Sarah has presented one of the most challenging underwriting propositions of any person I have quoted for personal accident and medical expenses coverage in the last quarter of a century.

Thomas also mentioned the risks posed by the duration of the trip, including uncertain food rations, muscle fatigue and the fact that she will be entirely alone.

ERM on the Rise

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An uprising in Egypt or a catastrophic natural disaster in Japan can make a company stop and think about how that event impacts their business. And events like these are helping to spur companies to fully embrace enterprise risk management (ERM).

This is a good thing. And, according to some, it’s only going to get better.

James Lam, president of risk-management consulting firm James Lam & Associates, has high expectations for the future of ERM, telling CFO magazine that “We’re going to make more progress in ERM implementations and its standardization in the next couple of years than we did in the last dozen.” According to his research, almost 90% of global organizations with more than $1 billion in revenue are either putting an ERM program in place or, in 25% of those cases, already have a program up and running.

Russ Banham, a contributing editor of CFO magazine, also has some great insight into the present state and future situation of the risk management movement. He penned quite an interesting ERM article that was published today. In it, Banham states that it’s not just black swan events that are to credit for the spike in ERM popularity, three trends have also caused an increase in interest.

  1. Corporate boards are under regulatory pressure to address risk management explicitly.
  2. Proponents of ERM are making progress in having it acknowledged as a best practice for overall risk management.
  3. New technologies are enhancing companies’ ability to evaluate, measure, and prioritize risks, and to test and report on their potential impact.

Banham points to the Dodd-Frank Act, the fact ratings agencies factor in ERM criteria into their ratings process, COSO II (the Committee of Sponsoring Organizations) and the SEC’s sharpened stance on risk management as why some companies, especially larger ones, have no option other than the fully implement an ERM program.

Governance issues aside, ERM would get a major boost if it were widely regarded as an industry standard for best practices. “We are not talking about a one-size-fits-all standard, since risk management is part art and part science, and organizations differ by geographies, markets, business lines, and organizational structure,” Lam says. “It can, however, be an industry-by-industry standard, customized by companies within a given industry.”

Optimism aside, most companies still have a long way to go in terms of developing a comprehensive, efficient and successful ERM strategy. As we see by the second graphic below, more than half of companies still have little or no common risk management processes implemented.

Let’s hope Lam’s predictions come to fruition.

Top 10 Ways Businesses Can Protect Consumers

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In a world where customers are frequently being taken advantage of online, a business’s top priority is to protect their most prized asset: the client. With that in mind, the Online Trust Alliance (OTA) has issued its Top 10 recommendations for 2011 to help businesses protect consumers from being fooled. The list includes techniques that businesses can use to help their customers (and even their employees) from deceptive and malicious online threats. Here are the top five:

  1. Upgrade all employees to the most current version of browsers that have integrated phishing and malware protection and privacy controls including support of “Do Not Track” mechanisms and controls. Such controls provide users the control on third party data collection, usage and data sharing of their online browsing activities, while balancing out the value of ad supported online services. Encourage consumers to update their browsers by notifying them of insecure and outdated browsers.
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    In addition consider terminating support for end-of-life browsers with known vulnerabilities by preventing log-ons and providing instructions to upgrade.

  2. Establish and maintain a Domain Portfolio Management program that includes monitoring look-a-like or homograph-similar domains and tracking renewals to prevent “drop catching” of expiring domains. Domain locking is recommended to help guard against unintended changes, deletions or domain transfers to third parties.
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    Such programs and practices can help protect a company’s brand assets and consumers from landing on look-alike sites compromising trademarks and trade names.

  3. Adopt Email Authentication including both SPF (Sender Policy Framework) and DKIM (DomainKeys Identified Mail) to help reduce the incidence of spoofed and forged email, helping to prevent identity theft and the distribution of malicious malware from tarnishing your brand reputation. Authenticated email allows ISPs, mailbox providers and corporate networks an added ability to block deceptive email, reduce false positives and protect online brands and sites from deception.
  4. Encrypt all data files containing customer profiles, email address and or PII, which are transmitted externally or stored on portable devices or media including flash and USB drives.
  5. Upgrade to Extended Validation Secure Socket Layer Certificates (EVSSL) for all sites requesting sensitive information including registration, e-commerce, online banking and any data which may request PII or sensitive information.  Use of EVSSL certificates help to increase consumer confidence of your online brand. When an EVSSL is presented, the address bar turns green providing the user a higher confidence level the site and company they are visiting is a legitimate business.

“The Internet has become a foundation of commerce, communication and community. As such, business and government have a shared responsibility to take steps to curb cybercrime and online abuse,” said Senator Joe Lieberman. “There are a lot of simple, common-sense steps that both businesses and consumers can take to make them more secure.

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I applaud OTA’s efforts to promote practices which enhance the internet’s integrity, privacy, security and resiliency.” Click for the complete list of OTA’s top 10 recommendations.

2010 Disasters Cost the World $218 Billion and the Insurance Industry $43 Billion

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Swiss Re’s latest sigma study (full report; abstract) reveals that the final economic losses resulting from disasters (both natural and man-made) across the globe in 2010 was $218 billion — a number that dwarfs the $68 billion in damages caused by catastrophes in 2009.

With unprecedented flooding, Asia was the region worst hit, with $75 billion of the total occurring there. In relative terms, however, the fallout may be worse for the Latin America/Caribbean region. The $53 billion caused by the earthquakes in Haiti and Chile represents a staggering 1.1% of the region’s GDP. (By comparison, Asia’s billion in losses was only 0.

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28% of its GDP.)

Here is Swiss Re’s regional breakdown of the number of disasters, death toll and financial fallout.

Insured losses in 2010 totaled $43 billion as a whopping 10 different events caused insured losses of at least $1 billion. This was a huge jump from the $27 billion in insured losses for the global industry in 2009.

In all, 2010 had 304 catastrophic events.

The globe has seen a troubling trend of more natural catastrophes nearly every year in recent decades, and 2010 was no different with 167 natural disasters. On the flip side, the declining trend of man-made disasters the world has experienced since 2005 also held true, with just 137 man-made events. This is perhaps the only positive nugget of information in the entire report. (Although even this silver lining is bittersweet as you will see below when we look at the resulting death toll.)

Worst of all, of course, were the 304,000 people killed by disasters last year, making 2010 the third deadliest year since 1970 (the year Swiss Re first began collecting such data).

In 2010, severe catastrophes claimed significantly more lives than the previous year: around 304,000 were killed, compared to 15,000 in 2009. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222,000 lives. Nearly 56,000 people died during the summer heatwave in Russia. The summer floods in China and Pakistan also resulted in over 6,200 deaths.

Man-made disasters accounted for a small percentage of deaths last year, in relative terms, but the 6,446 killed was still a significantly higher number than the 5,970 who died in this manner in 2009. This fact puts a large blemish on the positive news that there were fewer man-made events. There may have been fewer incidents, but the ones that did occur were deadlier and that lower-occurrence/worse-outcome ratio should be going the other way in 2011 as safety, security and other risk management means strive to lessen the impact of catastrophes.

The man-made disasters that claimed the most victims in 2010 were a lead poisoning outbreak at an illegal gold mine in Nigeria in March (400 victims, mainly children), a stampede on a bridge at a festival in Cambodia in November (375 victims) and the collapse of a gold mine in Sierra Leone in March that killed approximately 200 people. Meanwhile, aviation and maritime disasters accounted for more than 800 and 1,100 victims respectively.

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Moving beyond the past, the globe has already been badly battered so far in 2011.

The Japanese earthquake and tsunami killed an estimated 18,500 people and caused upwards of $30 billion in insured losses alone, according to some experts. The Christchurch quake in New Zealand also ravaged the insurance industry, Australia floods cost billions and winter storms in the United States did plenty of damage of their own.

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Who knows what the final fallout will be from social revolutions in the Middle East, but it’s safe to say that there will be some claims.

All this and it’s not even hurricane season yet.

Hopefully, there is no way that more people will be killed by disasters in 2011 than we saw in 2010. But when it comes to economic losses, specifically insured losses, it is already shaping up to be a historic, market-altering year.